Appropriations of capital assets to trading stock are treated as taking place at market value under, TCGA 1992, 161(1), giving rise to a chargeable capital gain or an allowable loss. An election can be made under s 161(3) to deduct or add the gain or loss respectively to the market value of the asset. This rebases the asset for the purposes of computing future trading profits.
Such an election is often made to avoid a chargeable gain from crystallising but it can also result in the conversion of capital losses into more flexible trading losses by treating the loss as part of the rebased value of the appropriated stock.
For appropriations into trading stock made on or after 8 March 2017, elections under TCGA 1992, s 161(3), can only be made where the market value results in a chargeable gain. Similar changes will be made to s 161(3ZB) so that the changes also apply to ATED-related gains.
The changes will prevent the conversion of capital losses into income losses and will particularly impact property clients who hold property currently standing at a loss and seek to crystallise more favourable trading losses.